Restraining Government in America and Around the World

Don’t Be Afraid of the Chinese Economic Tiger

The news that China has surpassed Japan as the world’s second-largest economy has generated a lot of attention. It shouldn’t. There are roughly 10 times as many people in China as there are in Japan, so the fact that total gross domestic product in China is now bigger than total gross domestic product in Japan is hardly a sign of Chinese economic supremacy. Yes, China has been growing in recent decades, but it’s almost impossible not to grow when you start at the bottom – which is where China was in the late 1970s thanks to decades of communist oppression and mismanagement. And the growth they have experienced certainly has not been enough to overtake other nations based on measures that compare living standards. According to the World Bank, per capita GDP (adjusted for purchasing power parity) was $6,710 for China in 2009, compared to $33,280 for Japan (and $46,730 for the U.S.). If I got to choose where to be a middle-class person, China certainly wouldn’t be my first pick.

This is not to sneer at the positive changes in China. Hundreds of millions of people have experienced big increases in living standards. Better to have $6,710 of per capita GDP than $3,710. But China still has a long way to go if the goal is a vibrant and rich free-market economy. The country’s nominal communist leadership has allowed economic liberalization, but China is still an economically repressed nation. Economic Freedom of the Worldranks China 82 out of 141, just one spot above Russia, and the Index of Economic Freedomhas an even lower score, 140 out of 179 nations.

Hopefully, China will continue to move in the right direction. As Jonah Goldberg notes in his Townhall column, it is good for America to have China become a more prosperous nation.

Yes, technically, China’s gross domestic product is now slightly ahead of Japan’s. But GDP is a gross statistic. It doesn’t tell you nearly as much as you might think. In a very real way, China is still poorer than Japan. It’s also poorer than Tunisia, Ecuador, Gabon, Kazakhstan and Namibia. …China still has enormous problems, many of which aren’t reflected in its GDP growth rates, and without democracy, a free press and the rule of law, we can’t know what all of the problems are until they explode (and neither can the Chinese). But all of this misses the most important point. Economic “competitiveness” is a con. It assumes that when other countries prosper, America loses. That’s nonsense. If the average Chinese worker were as rich as the average Japanese worker, it would be an economic windfall for the United States. Conversely, if China’s economy imploded tomorrow, we would “gain” competitively but suffer economically. The cult of competitiveness is just a ruse used to justify the ambitions of economic planners and the pundits who worship them.

9 Responses

So the issue is that Americans have become accustomed to a unique, exceptional and enviable standard of living. So they become annoyed when their competitors gain ground, even if those competitors are still quite some way behind.

But an enviable and exceptional standard of living is, almost by definition, linked to enviable and exceptional per capita production. And that enviable and exceptional per capita production is not something that is greatly encouraged by the incentives and counterincentives of the Welfare State. So as other countries institute even modest liberalizations of their economies (ironically after finally realizing how far behind the freer economies they had fallen) their productivity increases, their prosperity follows, and the American standard of living becomes less and less exceptional.

As I have said many times, citizens of the Western nations either remove the dis-incentives to production they have walled themselves into and start growing at something comparable to the worldwide average of 4%, or the rest of the world catches up to them and Western standard of living converges to a worldwide average.

Of course, if that happens through China catching up to the US, then, in absolute terms that is good for everybody. The pity is that Americans have finally discovered the Welfare State and are thus locking themselves into perpetually low average growth rates of 2%. And the worst part is that such changes are irreversible, as virtually every other nation in Europe has shown.

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[…] conclude by doing one of my favorite things – quoting myself. Here’s a bit of what I wrote last year. China has been growing in recent decades, but it’s almost impossible not to grow when you start […]